What any American who eats should know about Trump’s trade fight for farmers

This little legume bears the burden of a controversial point of contention in the escalating global trade spat: Are U.S. farmers — savvy in export rhetoric — really getting the raw deal that President Trump says they are? Or does their bigger concern lie with the future for aging trade pacts, like the North American Free Trade Agreement, or with the China-favorable Comprehensive and Progressive Agreement for Trans Pacific Partnership (formerly known as the TPP) that leaves a solitary U.S. on the outside looking in?

China slapped a 25% tariff on American soybeans just last week in retaliation for the Trump administration’s levies on Chinese-made goods, including technology. And it’s not over: the U.S. late Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods.

Read: Fitch warns President Trump’s trade fight could cost the world $2 trillion in global trade

As a would-be trade war percolates, soybeans factor into the future of American agriculture and the American dinner table. Soybean tariffs impact the farmers who grow the crop, of course, but also anyone who grows and eats the meat from animals fed by soy meal SMZ8, +0.49%

Here are a few considerations.

Is Trump listening to farmers? Trump had soybean growers, or apparently all farmers (never mind if the crop is almonds or cattle or corn), in mind as he tweeted Wednesday:

Yet an optimistic outlook for economic growth left farmers surveyed by Purdue University and the CME Group’s Center for Commercial Agriculture relatively upbeat in recent weeks, though unable to ignore the global trade row between the Trump administration and China, the European Union, Canada and Mexico.

“Concerns about the potential for reduced exports to China were exacerbated by improving U.S. crop conditions for both corn and soybeans, pushing yield and U.S. production expectations higher,” said James Mintert and Michael Langemeier, with the release of their latest Ag Economy Barometer. Short term, farmers have felt some pain. Futures prices for corn CZ8, +0.78% fell 10%, wheat WU8, +0.69% dropped 7% and soybeans SX8, +0.44% tumbled 12% from the end of May into June, when Purdue and the CME conducted its survey. Of course that makes feed costs for livestock farmers, and presumably meat prices for consumers, lower domestically.

The tit-for-tat response between China and the U.S. is “very, very detrimental” to export-reliant farmers, said Republican Iowa Sen. Chuck Grassley on NBC Wednesday.

In general, farmers appear wary of what’s next.

China loves soybeans — and we grow a lot of them. Last year, U.S. growers sold nearly one-third of their soybean harvest to China. Soybeans are part of an Asian diet, but mostly they feed the livestock that’s in increasing demand from an expanding meat-eating Chinese middle class. Nearly 90% of the soybeans China consumed last year came from overseas — more than 100 million tons in total, according to Chinese government data. By comparison, the next biggest importer is Mexico, which took in 5 millions tons. That means China’s hunger for soybeans gives the U.S. an advantage.

China is responding to farm tariffs in real time. To increase the availability of other types of animal feed, China’s customs authority removed inspection requirements on a variety of agricultural byproducts, including peanut meal, cottonseed meal and rapeseed meal, the New York Times reported. At the same time, the Chinese government quickly upped the subsidies in support of homegrown soybeans.

There may be a will among Chinese farmers to get bigger and better at growing their own, but that’s not going to happen overnight. There’s no huge swath of rich soil over flat fields like in the U.S. and soybean, corn and other grain operations remain small, say fifth- and sixth-generation Iowa soybean farmers, Rick and Grant Kimberley, who’ve been regular visitors and consultants to Chinese farms. The Kimberleys once hosted Chinese President Xi Jinping on their Iowa grain farm, when Xi was still vice president.

With a lack of agricultural infrastructure in many parts of China, corn is dried in the middle of a busy, commercial street.

It’s a global market basket. The U.S. isn’t the only nation feeding the world and so its relative position of power, especially in trade negotiations, must always be considered. China can, and does, buy Brazil soybeans (though the South American nation is more often plagued with storage and transportation issues than other producers). In fact, by one measure, Brazil could soon top U.S. soybean production. The U.S. is expected to harvest 116.48 million metric tons of soybeans later on in 2018, falling short of Brazil’s estimated collection of 117 million metric tons for its crop year just ended, according to an oilseeds crushing group Abiove, which cited USDA figures. Brazil would take over the top ranking for the first time in history.

What’s more, farming to feed the world is a temperamental business, to say the least, well beyond any trade negotiations around a conference table. Seasons divide which hemisphere exports more grain, fruit and vegetables, and livestock, depending on the time of the year. A weather event for either hemisphere can trigger huge supply and price developments (Twitter responses to the Trump farming tweet reminded how the 2012 drought sent prices surging). And longer term, farming efficiency changes the competition landscape, which puts pressure on the U.S. to continue to lead.

There should be little doubt as to how much end-customers drive the market anyway. For instance, China just last year reopened its market to U.S. beef, a trade flow that has been closed off more than a decade after the mad-cow disease scare first sent China away from U.S. beef. China had gotten used to buying from Australia instead.

Read: Trump’s protectionism won’t dethrone King Dollar

Drop the hatchet, Nafta needs surgical changes. China isn’t the only concern for farmers and their consumers. Nafta agreement renegotiations — with farm products and autos front and center — are on ice for now. The 25-year-old Nafta pact is outdated, Iowa trade experts have stressed to MarketWatch. But its fix lies in the details, not starting from scratch and burning existing relationships, most farm groups contend. For instance, some analysis has focused on updating cross-border data flows and modernizing business visas as industry has changed.

Read: Iowa to Trump: Modernize Nafta, please don’t kill it

Dairy’s soured situation. Farm experts say Trump’s strongest claim of U.S. unfairness may be in dairy, between the U.S. and Canada in particular. Dairy producers, for one, were left out of the original Nafta pact. Since then, Canada applies, as Trump has tweeted, a roughly 270% tariff on U.S. dairy. Earlier this year, Canada implemented a state-controlled pricing policy that pays Canadian dairy farmers more than 50% more for their milk, which actually drives dairy prices higher in Canada than in the U.S. Simultaneously, Canada undermines global markets for dairy proteins by exporting skim-milk powder far below the global price, according to this op-ed from California dairy interests.

Nafta, of course, is not a bilateral pact. More than 60 companies and organizations representing American dairy farmers and cheese makers in June urged the Trump administration to reconsider its imposition of new tariffs on Mexico in light of that country’s constructive engagement in Nafta negotiations, the Wisconsin State Farmer reported. Mexico accounts for about one-quarter of all U.S. dairy exports, industry data show.